Russia seeks rescue in Islamic banking

Monday 23 Mar 2015 - 11:38 Makkah mean time-3-6-1436

Russia seeks rescue in Islamic banking (Google image)

Moscow, (IINA) - In a bid to rescue Russian economy, member of a Russian parliament, Duma, have submitted a draft bill to support Islamic finance, amid augmenting sanctions from a West.

"During a period of a practically total economic blockade from Europe and the US, our banks must find new ways to attract investment," Dmitry Savelyev, who sits on the Duma's financial markets committee, told Reuters on Saturday, OnIslam reported.

Trying to open new markets, the draft law was sent to parliament's lower house, the State Duma, this week to propose allowing banks to engage in trade activities, a concept central to many of the structures used in sharia-compliant financial products.

The bill is regarded as a first step to spur development of a sector which has posted double-digit growth in several Gulf and Southeast Asian countries, but which has struggled to get off the ground in Russia.

The draft law must pass three readings in the Duma before it moves to the upper house and then to President Vladimir Putin's desk to be signed into law.

Hit by sanctions, state development bank Vnesheconombank and VTB Bank have sought to build their Islamic finance know-how in a bid to develop new funding sources.

"This is where recent sanctions became a kind of catalyst, an extra push, to further look at the economic perspective in the relationship between Russia and OIC (Organization of Islamic Cooperation) countries," said Linar Yakupov, the head of the Association of Regional Investment Agencies of the Russian Federation.

Islamic finance could attract foreign investment and also mobilize funds from Russia's 20 million Muslims, Yakupov added.

"It is theoretically and technically possible for the government to prepare a law on Islamic banking, but it all depends on political will," said Murad Aliskerov, chief executive of LaRiba Finance, an Islamic financial company based in Russia's Dagestan republic.

"Islamic banks could have a huge social impact and act as an alternative to traditional banks."

A feasibility study is now under way between a consortium of Russian and Malaysian investors to create a standalone Islamic bank or an Islamic unit within a Russian lender, Yakupov said.

The study would be ready by September, allowing the sides to draw up concrete details for creating such an entity and assess which laws would have to be changed, he said.

Companies are also keen to explore Islamic bonds (Sukuk) as alternative financing tools, with Russia's Tatarstan republic hosting an industry summit next month focused primarily on such instruments.

SM/IINA

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